Journal article
Experiments on Percolation of Information in Dark Markets
P BOSSAERTS, E Asparouhova
The Economic Journal | Wiley | Published : 2017
DOI: 10.1111/ecoj.12464
Abstract
In dark markets, order submissions are bilateral, and transaction prices are known only to the trading counterparties. Here, we study to what extent the information aggregation theory proposed by Duffie and collaborators predicts outcomes in a laboratory version of such markets. We find that prices aggregate the available information but not in the strict sense of the theory, where prices converge exponentially fast to average private signals. Prices instead fluctuate within bands around this average. The band widths reflect, in the best case, the precision of the average signal and, otherwise, the precision of a single private signal.
Grants
Awarded by National Science Foundation
Funding Acknowledgements
Financial support from the National Science Foundation (Asparouhova: SES-1061844, Bossaerts: SES-1061824), the Banque de France Foundation, a Moore Foundation grant to Caltech (2006-13) in support of Experimentation with Large, Diverse and Interconnected Socio-Economic Systems, and the Development Fund of the David Eccles School of Business at the University of Utah is gratefully acknowledged. The article benefited from discussions with Darrell Duffie, and from insightful comments from the Editor and an anonymous referee. Data and programs used in the analyses reported here are available at http://uleef.business.utah.edu/DataEJ/.